Mortgage Rates

Mortgage Rates Interest rate markets opened generally unchanged this morning with early trade in stock indexes pointing to a little better open at 9:30. Europe’s stock market higher this morning. Spanish stocks and bonds gained after EU finance chiefs agreed to make available 30 billion euros by the end of this month. The goal is to eventually use the euro-area bailout fund to recapitalize banks directly instead of saddling the government with the debts. Eventually as much as 100 billion euros ($123B) in emergency loans will be needed to shore up Spain’s banks. Why should we care? Because Europe is leading the world these days, what happens in Europe’s debt problems spreads around the world. The one benefit is that US interest rates continue to fall aided by the fear factor; when (if) the fear subsides interest rates will have bottomed and begin to increase as billions of safety moves to US treasuries are unwound. The obvious negative is that Europe is dragging the global economy down, keeping unemployment levels high and growth declining. China’s imports rose less than anticipated in June, pushing the trade surplus to a three-year high and adding pressure on the government to support demand as the global economy slows. Imports increased 6.3% from a year earlier, the customs bureau said in a statement today in Beijing, compared with the 11% median estimate in a survey of 32 economists. Export growth slowed to 11.3% and the trade surplus rose to $31.7B. Germany’s Supreme Court is deliberating whether it is legal for Germany to participate in Europe’s bailouts. If the Court rules it illegal it is hard to imagine the Ponzi scheme of borrowing money from broke countries and lending it to other broke countries will survive for long. There are no scheduled economic reports due today; this afternoon Treasury will start its three auctions this week with $32B of 3 yr notes. Tomorrow $21B of 10 yr notes will likely keep the long end of the curve quiet and unable to improve much---that includes mortgage markets as well. The DJIA opened +69 at 9:30, NASDAQ +19 and the S&P +8; the 10 yr note at 9:30 -2/32 and mortgage prices +2/32 (.06 bp). The interest rate markets continue to fall; we believe the 10 yr note is likely to move to at least test its early June low at 1.47% (currently 1.52%); mortgage rates also will decline with treasuries. With US economic outlook being down-graded by the Fed and most economists, with continued high unemployment, the Fed will have to ease again in another QE. The FOMC meets at the end of the month with increasing thoughts it will announce the ease; if not then, then at the Sept meeting. Europe is nowhere near any significant plan and won’t likely find one anytime soon.